Survey on global trade promo practices

Infosys and TPMA are conducting a Global Trade Management Maturity Study. The early findings, based on partial results, are interesting -- I don't want to give away too much yet (and results might change), but a couple points that are showing up thus far:

• Data problems are the biggest problems in global TPM implementations -- incomplete data from retailers, lack of standardization, and inconsistencies in how data is analyzed are all among the top barriers for suppliers
• Most respondents use TPM systems for fund management and planning, but far fewer have modules for post-event analysis
• 56% say that their TPM system is mostly customized
• The one-time cost of a TPM system implementation was in the range of 1%-2% of revenue for most respondents

There's lots more. The survey is still open, so go here to complete it (you'll get a copy of the full results).

Of processes and systems

I have a lot of friends in the software business, selling trade promo systems, analytics packages, or enterprise software. Many of them are saying that it's getting tough to close deals these days. The rest are lying.

Wise marketers know they need to manage their trade promotion expenditures more tightly now than ever. Those who have good management tools know that they need the ability to forecast and optimize their pricing and promotion. A few weeks ago, I presented the argument for why optimization tools matter now more than ever (it's here), but it can be summarized quickly: If it's an advantage to be able to optimize pricing, then the more important pricing becomes, the bigger the advantage. How important is pricing right now?

So it would be wonderful if you had all the tools you need to manage, analyze, and optimize your trade promotion programs. But what if, as is true for most companies, you don't?

Well, you could go ask the CFO for a supplemental million or two to be added to the 2009 budget. In a few cases, in companies that have the ability to think long-term, you might get it -- there's no doubt that such an expenditure would pay for itself many times over in 2010, and keep returning benefits in the years beyond.

But the reality is that many companies, even many who pride themselves on taking the long view, will be focussed relentlessly on the short-term for at least the next few months. Any proposal that requires spending significant money in 2009 for a return (however big) in 2010 will not get far.

But that doesn't mean there's nothing you can do. Management of a trade promotion program involves both systems and processes. Too often, we focus on the systems because they are more glitzy and exciting, but the best systems will fail if laid on top of inefficient processes. In any well-run implementation project, the processes are fixed before the software is turned on. There is even a mathematical equation for describing the too-frequent cases where this is not done:

Bad Processes + New Software = Expensive Bad Processes

Identifying the bad processes and fixing them is not glamorous (to say the least), nor is it fun. But it also is not outrageously expensive. It can even (sometimes) result in fairly significant and fairly immediate savings. It also is something that should be done in any case, and very much needs to be done before you implement that new system that you want and need, but can't afford right now.

If you lay the groundwork now, you will be ready when things start turning around to act quickly and take advantage of the recovery

Trade Promo Tactics and Processes for Shopper Marketing

A couple weeks ago, I discussed an article about Shopper Marketing that in turn referenced a Deloitte/GMA study from last fall. It was a thought-provoking study, and I'd like to present a few of the things that crossed my mind while reading it.

Definition

The study made the point that there is no generally accepted definition of Shopper Marketing (a fact that calls into question their efforts to measure it). I'm not too hung up on tight definitions, but a description in general terms of what I'm talking about is a necessary starting point, I think. I'm not suggesting that others follow my definition, and I'm perfectly willing to accept another if a consensus forms.

A definition is especially important for manufacturers when they get to the question of budgeting, as I discuss below - what is included in which budget is a point that will require very tight definitions indeed.

I'm inclined to say that Shopper Marketing is limited to in-store promotion, because I'm of the opinion that definitions that become so broad that they exclude nothing (e.g., "TV advertising is directed to shoppers, so it's shopper marketing") become meaningless. I can see an argument that mailings to loyalty card members are Shopper Marketing, but for now I'll stick with saying that Shopper Marketing is limited to in-store promotions. An important question is whether pricing actions are included. For now, I'll say no (for reasons I detail later), but I can see combo price/image promos being Shopper Marketing. Further refinement of the definition will be needed, but let's leave that for later.

For now, my working definition is: "Joint manufacturer-retailer in-store promotions that are focused primarily on building or maintaining brand image."

Applicability across Categories

The study was entirely concentrated on the CPG/grocery category, which is hardly surprising, given that it was sponsored by the Grocery Marketing Association. Nor is it a surprise, given that the biggest trade promotion expenditures are found in that category.

But a growing share of consumer durables sales is going through channels using CPG tactics (and many of the leading retailers in durables channels are adopting CPG tactics). So, although this study may be less applicable to consumer durables, the subject of Shopper Marketing is not without interest even in those categories.

In addition, much of the attraction of Shopper Marketing is not channel-specific. It is based on the growing awareness that, as mass media fragments and the channels consolidate, it is becoming much more efficient to reach mass markets in the store than through traditional broadcast and print media.

It is harder to see applications of the study or of Shopper Marketing in general for business-to-business or non-retail marketers (e.g., financial services).

Funding/Budgeting

In order to create trade promotion programs that facilitate effective Shopper Marketing, a number of changes are necessary. The most important are in the areas of budgeting and in the control of the programs and budget.
Because we're talking about control of large budgets, I don't think I need to tell you that these changes will meet with opposition by those who see their empires threatened.

The vast majority of trade promotion budgets in CPG/grocery are under the control of the Sales department. This is hardly surprising, since the purpose of the programs has long been seen as driving immediate sales. If, however, we are examining an initiative whose purpose is less focused on immediate results, and more on maintaining or building brand image, then it makes little sense to have Sales in charge of the budget, because Sales is not responsible for nor measured on brand-building.

I will state the obvious: Sales is not going to like this.

I can hear the VP-Sales right now: "If Marketing wants to do in-store activities to build the brand, I'm all for it. But the funding needs to come out of the national ad budget."

I don't entirely disagree. To the extent that Shopper Marketing is intended to supplement or replace brand-building efforts such as national TV or magazine ads, it should be funded from the budget that currently pays for those activitiesd. But the fact remains that a portion of the trade promo budget has always gone for endcaps, signage, and similar activities. If we are to say that those items are now to be paid for by Marketing, with no offsetting decrease in the budget controlled by Sales, the effect would be to increase the amount of spending on price promotion - not, I trust, what anyone wants to do.

What needs to happen is that both the Sales-controlled trade promo budget and the national advertising budget are cut, and a new Shopper Marketing budget created.

The logic behind the split would be that if the primary intent of an in-store promotion is to lower price to the retailer (and, perhaps, the consumer), it comes out of what I am calling the Pricing Promotions Budget, which is controlled by Sales. If the primary intent is to build the brand in concert with the retailer, then it comes out of the Shopper Marketing Budget, which is controlled by Marketing; traditional consumer-directed advertising run by the manufacturer alone stays in the national advertising budget.

Not covered in this description is out-of-store joint promotions (e.g., newspaper or radio run by the retailer promoting the brand). This category is substantial in durables, and not insignificant in CPG/grocery. Although it is not (in my definition) Shopper Marketing, it should be in that budget because it fits the same intent and function - that is, it is a joint supplier-retailer effort that is primarily brand promotion rather than price.

This split moves budget authority and responsibility where it belongs - Marketing has responsibility for the brand, and Sales for pricing.

This does not mean that there will be no conflicts and gray areas (many promotions, inevitably, involve both pricing and branding), but if managements understands and endorses the principles, then resolution of such questions should be possible.

Allocations

There are two ways I can think of immediately that a manufacturer might look at these budgets. One is to establish an overall budget figure (say 15% of sales) for price promos and Shopper Marketing, and base the breakdown largely on the retailers' demands for pricing money This might end up looking like:

• SuperValu -- 9% on price promo, 6% on brand-building
• Kroger -- 8% price, 7% brand
• Wal-Mart -- 15% price

It might also be that Sales sets a particular percentage for price, while Marketing allocates whatever budget they have based simply on which store is the best vehicle for the brand activities they want to carry out. In some cases that might lead back to something close to the above, since the retailer whose emphasis is totally on price may not be the best environment for building a brand image (depending on the image you're trying to build).

I imagine we'll end up with these two, blendings of these two, and various other approaches, before any sort of consensus approach is reached.

Systems, Processes, and Administration

Splitting of the trade promotion budget will require modifications to the systems and processes that currently control and monitor trade promotion activity and spending. If Sales and Marketing go their separate ways and use separate systems, it will not only be wasteful and inefficient, it will obscure management's view of overall channel spending.

TPM systems currently exist that can (in some cases, with moderate tweaking) separate control of budgeting and allocation processes, while rolling up to a single expenditure total. Without such systems and accompanying processes, a manufacturer will end up with Sales having budgetary control over an area (brand-building) that is Marketing's responsibility, or Marketing having control over Sales's pricing functions. Neither approach will work.

The administrative processes currently in place (e.g., for documentation and settlement) can probably be continued with few changes, with the exception that it would be best to move them to a "neutral" dpartment (Customer Service or Finance, perhaps) to avoid the turf wars that may erupt between Marketing and Sales.
Shopper Marketing and Collaboration

The Shopper Marketing paradigm described here is very dependent upon a strongly collaborative relationship with retailers - a relationship that manufacturers may need to limit to key accounts or even a subset of their key accounts, both because of their own resource constraints and because of the inability or unwillingness of some retailers to participate.

Several years ago, Dale Hagemeyer of Gartner produced a slide depicting several collaborative scenarios, a slide that many (including me) have stolen for their own presentations. In simplified format, it looks like this:

Successful Shopper Marketing efforts will require collaboration that looks like the diamond on the right. At present, brand-building trade promotion efforts generally follow the butterfly scenario and look like this (based on a chart in the GMA study): A successful Shopper Marketing collaboration will look like this:

In regard to planning, the Deloitte/GMA study made a recommendation with which I strongly agree:

Follow One Strategy. Manufacturers should not put strict boundaries between trade promotions and shopper marketing programs. Both are stimuli that influence shoppers in the store. First, manufacturers should start aligning trade promotion with shopper marketing programs. Then, they should approach retailers with one plan/calendar that has all the programs that influence a specific shopper segment.

The trick, of course, will be getting Marketing and Sales to step outside their silos long enough to agree on a single go-to-market plan and coordinate their efforts to implement it. This will be tough - we don't often enough see coordination between two efforts today (national advertising and trade promotion), how much harder will it be to coordinate three - national advertising, Shopper Marketing, and pricing promotions?

However difficult it is, I would submit that the rresults are likely to be more than sufficient to justify the effort.
Even after divisions are overcome within the manufacturer, it will be necessary to build relationships with the retailers' marketing departments. Promotions that run through the retail buyer face problems similar to those created on the manufacturer side if Sales is in charge of the Shopper Marketing budget: The retail buyer's job performance ratings and other incentives are not affected by how much brand-building goes on in the store; he or she is judged on pricing and sales measures.

Because of the complexity of these relationships, and the obstacles to them, it is almost certain that Shopper Marketing programs will be rolled out over time, beginning with only a few key accounts, and will probably vary in important ways between accounts. Account-specific marketing will be supplemented by account-specific Shopper Marketing.

Measurement and Analytics

Shopper Marketing is greatly dependent upon data and analysis, and will require both new measures and new tools.

This is where Nielsen's PRISM (about which I have expressed some skepticism in the past) and similar initiatives may prove to be of great worth.

Part of the reason for segregating Shopper Marketing and pricing promotions, in addition to the points made above, will be the need to apply separate measures to them. Pricing promotions will be subject to the trade promotion metrics that have been developed in recent years - lift, cost per incremental case, and other volume and profit measures derived from scanner data.

Shopper Marketing will be subject to measures more similar to print and broadcast media - reach, frequency, cost per thousand. Ideally, though, combo measures will be developed so that we will see what percentage of the shoppers who saw the display bought the product. These will be similar to direct mail conversion measures, or perhaps will mimic the movement of Internet advertising metrics, which moved in a few years from gross impressions to cost-per-click to cost-per-sale.

Shopper Marketing also offers opportunities to use retailer data insights. Wal-Mart's Retail Link, for example, segments stores into clusters based on demographic characteristics of their customer bases, such as ethnicity or age. At present, relatively few manufacturers take advantage of such data in designing promotions for their retailers. I believe (though I certainly can't prove) that Shopper Marketing programs run by Marketing would be more apt to utilize such data than trade promotion programs run by Sales.

Conclusion and Summary

None of these proposals are certain to happen, nor are they certainly the best way to approach Shopper Marketing. What I've presented here is intended simply as a starting point for a discussion on how best to deal with an approach that involves both Marketing and Sales, that is attempting to accomplish both immediate sales lift and longer-term branding, that involves both advertising/promotion and pricing actions. My tenttive prescription is to separate budgeting, authority, and responsibility based on intended goals, while blending the planning and reporting, and both separating and blending the measurement and analysis.